Suppose That Over the Life of the Loan,the Total Interest

question 34

Multiple Choice

Suppose that over the life of the loan,the total interest expense for a monthly loan is $17,000,while the total interest payment for an annual loan is $19,000.Which of the below statements is FALSE?

• A)The difference reflects the reduction of the principal each month versus the annual reduction of the principal.
• B)The more frequent the payment,the lower the total interest expense over the life of the loan,even though the effective rate of the loan is higher.
• C)Reducing principal at a slower pace reduces the overall interest paid on a loan.
• D)Reducing principal at a slower pace increases the overall interest paid on a loan.

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Definitions:

Borrower

An individual or entity that receives funds from a lender under the condition of returning it over time, with interest.

Lender

An individual, a financial institution or another entity that provides funds to others with the expectation that the funds will be repaid, typically with interest.

Current Liability

This refers to debts or obligations that are due to be paid within one year or within the normal operating cycle of the business, whichever is longer.

Current Assets

Assets that are expected to be converted into cash, sold, or consumed within one year or within the normal operating cycle.